short sale, reo, fha oh my!

vllygrrlApril 22, 2009

My husband and I are trying to buy our first home. We've looked at over 30 houses, and the one we fell in love with was a short sale...figures, right? We put an offer in on March 23. Early last week, it was discovered that the sellers had filed for a deed in lieu of foreclosure and the bank had accepted it. We figured we were dead in the water, but it turns out the bank wants to proceed with our offer. A negotiator had been working on our file, and this week it moved to another case worker. We have not had to redo any paperwork, which seems strange to me. I was concerned by the fact that the property is now owned by the bank, but they are leaving the listing agent with the property until August - looks like they want to keep the same players in place unless our deal goes dead. Am I just overly optimistic that these are all good signs? The listing agent told our agent today that she thinks they are close to accepting the deal.

If they do, we will be using an FHA loan to purchase the property. It has a cabana building in the back (like a large, one room shed, but with electric and phone hookups). Will this building be subject to the FHA appraisal? We already know that there must be water in the pool so that they can check the equipment there. This is a lot to deal with for rookie buyers like us, but the property is truly worth it. Should we be working on the mortgage paperwork yet, and locking in a rate, or just hold off a little longer? We have our inspectors lined up just in case.

Any advice for us?

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Hi Val,

I'd suggest consulting with your FHA loan officer. FHA (and virtually all conventional financing with less than 40% down payment, anymore,) requires the ownership title of the actual selling owner to be in place for no less than 90 days.

Obviously, if the bank took title, you don't have 90 days. If the shortselling bank KNOWS that you want to buy using government or conventional financing, they'll need to sort out a way to simply stand by without actually taking title from the old seller, and have that seller remain directly selling to you (which would explain why there has been no re-signing of contract changes or addenda.)

BOTTOM LINE; check with ALL your professionals, especially your finance professional. Don't lean solely on your real estate agent (let alone the listing agent.)

Dave Donhoff
Leverage Planner

    Bookmark   April 23, 2009 at 11:48AM
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Thanks, Dave - it looks like that is what is happening! I got word from our attorney this morning that the Bank is leaving this in place as a short sale. Now we really need help - they are countering $21,000 OVER list price. I am confused about the title, though - the bank is proceeding with the offer with us directly....the sellers have not signed the contract - is it possible that their short sale attorney, who is still involved, has been given signing authority?

The house has been on the market since last summer. It was originally listed for $345,000, then dropped to $325,000, then in January it was reduced to $315,000. We offered $290,000. The counter from the bank is in line with current neighborhood list prices, but there are no comps more recent than November - NOTHING is selling. First quarter last year, there were 85 homes sold in the town...this year there were 8, and they were ALL townhouses. In addition, home sold prices in our county dropped 8% last year, and continue to drop at a rate of 1% a month. We are thinking of countering the bank at $294,000 - does this seem reasonable?

    Bookmark   April 23, 2009 at 12:09PM
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Hi Val,

is it possible that their short sale attorney, who is still involved, has been given signing authority?

More than possible, it is likely.

We are thinking of countering the bank at $294,000 - does this seem reasonable?

"Reasonable" is a negotiations emotional term. The bank's shortsale negotiator has a *very long* spreadhseet of properties she's juggling, and has zero resources to apply emotionally. She's basing her "minimum acceptable amount" on some formula relating to the feedback their bank has had from an appraiser, the outstanding balance of the defaulting note, and how the note-owner has instructed them in terms of 'being flexible to which breaking point.'

Successfully negotiating a shortsale (not just "the purchase of a home from a bank") is a specialty... if you're not normally specializing on this as a business, and don't have an agent who does (most vanilla realtors simply do deals the same way they did last year,) then you're in wayyyy above your heads (and the bank's negotiators know it.)

As a retail buyer, with a retail Realtor®, your best hope is to succeed in buying the home of your preference at a retail price.

IF you want the BENEFIT of a somewhat lower price, you'll have to specialize (or hire someone who specializes) in shortsale negotiations.

People who specialize in ss nego's rarely have any interest in commissions... you either hire them as an equity partner, or you simply allow them to "mark up" the final price of a successful purchase to net them a reasonable profit on whatever they actually acquire the place for (and I don't know any specialists that would do any deal for under $10k profit... it simply takes too long, too much hustle, and the batting averages are too low... you have to be willing to fail repeatedly in order to win.)

BOTTOM LINE; If you were told you'd get a "better deal financially" by buying a shortsale home in a traditional fashion, you were duped. You CAN get the home you desire... but you'll end up paying basic market usually.

I know that's not what you prolly wanted to hear.... hopefully it helps you avoid more pain though.

Dave Donhoff
Leverage Planner
(Private real estate shortsale specialist...
Coaching other investors, negotiating for my own portfolio only.)

    Bookmark   April 23, 2009 at 4:52PM
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